BOOKS: CAPITALISM AT THE CROSSROADS, by Stuart L. Hart

by Jim Manwaring and Warren Roche (reviewers)

News Weekly, March 4, 2006

CAPITALISM AT THE CROSSROADS: The unlimited business opportunities in solving the world's most difficult problemsby Stuart L. HartUniversity of Pennsylvania: Wharton School PublishingHardcover: 224 pagesRRP: $49.95

This book is very relevant to the issue of Australia's economic and political sovereignty, which has been steadily weakened with the explosion of foreign debt and the progressive domination of our economy by foreign-based multinational corporations (MNCs).

Stuart Hart, a professor of management at Cornell University in New York State, is a strong supporter of corporate capitalism. But he is convinced that, unless MNCs are prepared to make major changes, many will fail.

Hart reminds us that, between the two world wars, many commentators concluded that corporate capitalism was coming to an end.

Of course, it survived, grew rapidly after World War II and prospered, especially after the collapse of communism in the Soviet Union and Eastern Europe in the early 1990s.

In the last decade, however, there has emerged a powerful anti-globalisation movement.

Hart argues that corporations should be less preoccupied with maximising profits than with responding to four legitimate concerns:

The physical environment: If business does not respond to environmental concerns and the need for sustainable development, the whole "natural economy" will be destroyed, without which humanity cannot live.

The rights of workers and their families: If the anti-globalisation movement continues to grow, it will not be long before democratically-elected governments are forced to adopt some of its human rights demands.

The preservation of communities: There are numerous instances of industrial projects forcing native people from their communities for a range of reasons:

Pollution of the water supply and changing of water courses.

Harm to human health by chemicals from aluminium and lead smelters.

Deforestation, which destroys the ecosystems on which people are dependent for food and fuel.

The preservation of cultural values: Indigenous communities must be allowed to retain and preserve their identity and not have their culture destroyed by "economic development" being imposed from above.

Hart says that in some parts of the world, corporations are now giving greater recognition to these needs.

Self-defeating

But, elsewhere, their obsession with maximising profits means they persist in ignoring legitimate community needs. Ultimately, this is self-defeating behaviour. In Latin America, in recent years, six pro-globalist governments have been thrown out of office.

Hart argues that corporations, in order to avoid this kind of anti-capitalist political reaction, should take pains to become integral and respected members of the communities in which they locate, so that they are no longer viewed as outsiders.

Is the notion of MNCs becoming environmentally-friendly, worker-friendly and community-friendly, a mere pipe dream?

Hart believes not. He points to the success of British-owned Unilever in adopting this model in India. Unilever's Indian subsidiary, Hindustan Lever Limited (HLL), requires all of its employees to spend six weeks living in rural villages, seeking customer insights as it develops new products and sourcing raw materials from local producers.

HLL has created an R & D centre in rural India to develop products for the needs of the poor. It uses local people to distribute its products. One very successful product is a low-cost domestic detergent.

By developing local understanding, building local capacity and encouraging a creative market entry process, HLL generates substantial profits from operating in low-income markets. Today, more than half of HLL's revenue comes from operating at the base of the economic pyramid.

HLL has created tens of thousands of jobs, improved hygiene and quality of life, and has become an accepted partner in development among the poor themselves.

Another success story is the famous Grameen Bank's success in helping the Bangladesh poor to make a decent living (which ultimately benefits the bank's balance sheet too).

Hart argues that it is a mistake for corporations to ignore the opportunities of providing products and services to the 4.5 billion (two-thirds of the world's population) who live in traditional economies and who are often referred to as the Bottom of the Pyramid (BOP).

MNCs ignore these potential clients because they are seen as having no money to buy products and services.

Hart's ideas have relevance to Australia, where people are becoming increasingly disenchanted that many foreign-based MNCs pay little or no tax in this country and repatriate a high proportion of dividends overseas.

MNCs are perceived as wielding inordinate market power, often driving small firms out of business and using their lobbying power to win large tax concessions or subsidies from government.

Those alarmed at Australia's deteriorating sovereignty - and that includes the future security of the nation - will find Hart's study of great interest.

It is also particularly useful for those interested in the environment, workers' rights, sustainable rural communities and the economic development of the poorer nations.